Thursday, June 26, 2014

Bad to worse: US economy shrank more than expected in Q1

The U.S. economy contracted at a much
steeper pace than previously estimated in the first quarter, but there are indications
that growth has since rebounded strongly.

The Commerce Department
said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the
economy's worst performance in five years, instead of the 1.0 percent pace it
had reported last month.

While the economy's woes have been largely
blamed on an unusually cold winter, the magnitude of the revisions suggest
other factors at play beyond the weather. Growth has now been revised down by a
total of 3.0 percentage points since the government's first estimate was
published in April, which had the economy expanding at a 0.1 percent rate.

The difference between the second and
third estimates was the largest on records going back to 1976, the Commerce
Department said. Economists had expected growth to be revised to show it
contracting at a 1.7 percent rate.

The difference between the second and
third estimates was the largest on records going back to 1976, the Commerce
Department said. Economists had expected growth to be revised to show it contracting
at a 1.7 percent rate. Sharp revisions to GDP numbers are not unusual as the
government does not have complete data when it makes its initial and
preliminary estimates.

The latest revisions reflect a weaker pace
of healthcare spending than previously assumed, which caused a downgrading of
the consumer spending estimate. Trade was also a bigger drag on the economy
than previously thought. The economy grew at a 2.6 percent pace in the final
three months of 2013. With the first quarter in the rear view and the
April-June period looking stronger, investors are likely to ignore the report.

Data such as employment, manufacturing and
services sectors point to a sharp acceleration in growth early in the second
quarter. However, the pace of expansion could fall short of expectations, which
range as high as a 3.6 percent rate. Economists estimate severe weather could
have slashed as much as 1.5 percentage points from GDP growth in the first
quarter. The government, however, gave no details on the impact of the weather.

Consumer spending, which accounts for more
than two-thirds of U.S.
economic activity, increased at a 1.0 percent rate. It was previously reported
to have advanced at a 3.1 percent pace. Exports declined at a 8.9 percent rate,
instead of 6.0 percent pace, resulting in a trade deficit that sliced off 1.53
percentage points from GDP growth. Weak export growth has been tied to frigid
temperatures during the winter.

Businesses accumulated $45.9 billion worth
of inventories, a bit less than the $49.0 billion estimated last month.
Inventories subtracted 1.70 percentage points from first-quarter growth, but
should be a boost to second-quarter growth.

A measure of domestic demand that strips
out exports and inventories expanded at a 0.3 percent rate, rather than a 1.6
percent rate.

Durables tumble by more than expected

A separate report showed orders for
long-lasting U.S.
manufactured goods unexpectedly fell in May, suggesting an anticipated rebound
in growth this quarter could fall short of expectations, even as a measure of
business capital spending plans rose.

The increase in core capital goods points
to some pick-up in business spending, which should support second-quarter
growth.

While the economy has rebounded from its
winter-induced slump in the first quarter, data such as retail sales and
housing starts suggest growth could fall short of expectations. Growth
forecasts range as high as a 3.6 percent annual pace. The economy shrunk at a
2.9 percent rate in the first quarter.

Core capital goods shipments rose 0.4
percent last month. Shipments of core capital goods are used to calculate
equipment spending in the government's GDP measurement. They had declined 0.4
percent in April.

Penny S.
Pritzker is the secretary at the U.S. Department of
Commerce forthe Barack Obama administration, a member of the Commercial Club of Chicago, wasthe
national finance chair, fundraiser for the 2008 Barack Obama
presidential campaign, a co-chair for the 2009 Barack
Obama inaugural committee, a fundraiser, national co-chair for the 2012 Barack Obama presidential campaign, a contributor for
the 2013 Barack Obama inaugural committee,
the host for the Barack Obama fund-raising dinner, 7/2/2008,
and Craig M. Robinson’s basketball coach
for the children's team.

Note: R. Eden Martin is
the president of the Commercial Club of Chicago,
and counsel at Sidley Austin LLP

Michelle
Obama was a lawyer at Sidley Austin LLP,
and her brother is Craig M. Robinson.

George Soros
was the chairman for the Foundation to
Promote Open Society.

Rebecca
M. Blank was a senior fellow at the Brookings
Institution (think tank), a trustee at the Urban
Institute (think tank), and is the deputy secretary at the U.S. Department of Commerce for the Barack Obama
administration.

Valerie
B. Jarrett is Vernon E. Jordan Jr’s great niece, the senior adviser for the Barack Obama administration, and a member of the Commercial Club of Chicago.

Penny S.
Pritzker is a member of the Commercial Club of
Chicago, the secretary at the U.S. Department of
Commerce forthe Barack Obama administration, wasthe
national finance chair, fundraiser for the 2008 Barack Obama
presidential campaign, a co-chair for the 2009 Barack
Obama inaugural committee, a fundraiser, national co-chair for the 2012 Barack Obama presidential campaign, a contributor for
the 2013 Barack Obama inaugural committee,
the host for the Barack Obama fund-raising dinner, 7/2/2008,
and Craig M. Robinson’s basketball coach
for the children's team.

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They may be more likely to go to Heaven for good intentions yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be “cured” against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.~ C. S. Lewis

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